ikkyu's Comments

Shorting the Market by Going Long the Dollar and Volatility

Thu, 26 Nov 2009 02:32:35 -0500

It seems that comparing VXX to $VIX is not fair at all, since it tracks the futures and not the cash index.

The Return of Japan's Zombie Finance

Wed, 21 Oct 2009 20:19:10 -0400

Great article and overview, despite how grim the outlook!

Japan: DPJ's First 100 Days (Part II)

Tue, 01 Sep 2009 09:19:59 -0400

Wow, awesome review of a complicated situation. Many thanks.
Cheers from Osaka,
john

Opportunities in Options Markets, Summer 2009

Thu, 02 Jul 2009 02:46:23 -0400

Greetings Geoff,

Nice to see the evolution of your thoughts about monte-carlo and options pricing. I think this is the most interesting stuff you have done to date.

Please let me ask a few questions, if you don't mind.

Not sure why underpriced options would suggest buying calls rather than buying puts (or more reasonably straddles) in the short run (<3 years). Serial correlation can be positive with a negative price trend, can it not?

Also, are you talking about buying OTM calls on EBAY? While stock markets tend to go produce positive results over long periods, you have to have to inherently predict the magnitude of the move when buying options.

Which options are you talking about selling? The long dated LEAPs or the front month? You would have interest rate risk on the LEAP, far lower gamma initially, and wider bid-ask spreads. I usually divide the time value by the number of days till expiry to get a better idea of the decay per day.

Also, why sell covered calls at all? Naked puts would be the risk equivalent and would simplify things. If you get exercised, you could then start selling calls on the underlying.

While i like your plan, it is clearly not an equivalent for Bodie's conservative methods. Bodie's plan seems like it would work better with a call spreads. It would be like your own index annuity.

Just some thought. Nice piece of work. Seems like you are definitely thinking out of the box.

Cheers from Osaka,
john

Rising Interest in Currency Funds

Fri, 29 May 2009 19:53:26 -0400

Greetings,

As always, a great overview by Mr. Shaw

To throw my 2 yen into the discussion, I think the carry trade makes sense as a default position for engaging in currency markets. I don't think that is highly disputed among currency experts. Of the three major techniques for trading currencies, valuation (PPP), momentum, and carry, carry has by far the best risk-adjusted returns. Don't take my word for it though. Compare various indices:
https://index.db.com/d...

Also, carry trading really compliments a bond heavy portfolio, as there is a fairly constant negative correlation.

Cheers from Osaka,
john

Japan's J-REIT Market to Get a US$10.5 Billion Bail-Out

Tue, 26 May 2009 07:58:32 -0400

Great article, Whitten-sensei, if a bit of teaser.... (we all have to make a living!) Presumably those strong candidates you mention would be appropriately represented by market cap in the ETF.

What is the current yield of the index? Is there not going to be considerable share issuance? Average leverage ratio? Discount to NAV for the index? Sorry, maybe these might just be ideas for future articles.

You are a great resource here.

Best wishes from Osaka,
john

S&P 500: Plausible Downside Target of 500

Wed, 21 Jan 2009 07:54:34 -0500

Very nice piece of work. Exceptionally well thought out.
Thanks from Osaka,
john

Asset Allocation ETFs: Low Expenses Are Nice, Losing Less Money Is Nicer

Tue, 13 Jan 2009 08:40:13 -0500

You call yourself "at the forefront," "astute," and an "expert" yet you also claim that ETF's are the "lowest cost possible" way invest in currencies?

You might want to read up on that.

Commodities Roll Yield in 2009

Mon, 12 Jan 2009 09:16:53 -0500

Excellent presentation on a critical topic. Thanks.
Best wishes from Osaka,
john

Let Warren Buffett Handle Your Portfolio

Fri, 19 Dec 2008 04:09:40 -0500

[Initially published at World Beta]

Greeting Folks,

I am a huge fan of Mebane's stuff and this site has taught me a lot. Thus, I just want to go through an example to see if a pure alpha extraction of a Buffet port is going to work.

Here is how I break it down with today's numbers for a $100,000 port on prices and margin for today. Consider two options. The first might be buying SPY one year at-the-money options. Right now, they would cost about 15% of the port and that is only with a delta of 50 (i.e. an imperfect hedge). You could use emini S&P futures. You would need about 2 and a quarter contracts and your initial maintenance margin would be $13,923( at Interactive Brokers), or roughly 14% of the port, if you could have fractional contracts). You would be asked for more margin if the trade was going your way. You also lose about 1% a year for yours service and there are the trade transactions. I don's see how this is going to work. 3:1 leveraged ETF would require at least 33% of the port (and would work horribly).

Your example had a 50% hedge so that would require about 7.5% of the port value to hedge with a return of 7.4%? Whoops…. You would be at least minus 1% with your service fee. That is assuming your hedges went well (they aren't always so tidy).

I would take a good look at the alpha extraction sales pitch. It doesn't seem to add up to me. Am I missing something?

Cheers from Osaka,
john

The Pundits I Admire Are Turning Bullish

Wed, 03 Dec 2008 02:35:13 -0500

"I have no idea where the market will be three or six months from now. But 10 years from now, do you really think the Dow will be trading at 8,000? I sure don't."

I live in Japan. No one here thinks 10 years is a sure bet for a stock market recovery!

Cheers,
john

The Run to Safety: Ten-Year Treasury Hits All-Time Low

Wed, 26 Nov 2008 23:46:01 -0500

"The only way that Treasury yields can go any lower than they are now is if investors become even more terrified than they already are and that just doesn't seem possible.

Does it?"

My understanding is that quantitative easing implies buying long term debt to drive down that part of the yield curve. I am not sure i go along with your purely contrarian call. Look at how low japanese 10-year notes went! I would wait until a chart shows a downtrend.

Cheers,
john

Triple Leveraged ETFs On Fire

Wed, 26 Nov 2008 20:36:58 -0500

Why not go long the 3x and short the -3x for some real leverage!

Small-Cap Japan ETFs: Big Things May Come in Small Packages

Wed, 26 Nov 2008 09:28:38 -0500

Greetings,

Unfortunately, japanese equity markets and the $/Yen are rather strongly positively correlated, so investors in these u.s. funds are going to suffer from currency situations when things turn around in Japan.

By the way, J-reits are a great deal as well.

Cheers from Osaka,
john

Currency ETFs: Consider the Commissions

Thu, 28 Aug 2008 06:58:29 -0400

Greeting Ray,

Fair enough my friend.... different strokes and all. Funds like DBV and JEM may be useful, if expensive.

If there is a bundle to be made, carry trading is likely the best way to do it IMHO.

Best wishes and thanks for your opinion.

john

Currency ETFs: Consider the Commissions

Wed, 27 Aug 2008 23:17:29 -0400

Greetings,

I agree with the original poster on these costs being absurd. Any medium to long term forex strategy is going to be better accomplished with a forex broker. ETF's are a primitive way to get such exposure.

I am not sure where Ray is getting his quotes from. I show a spread of around .007% for EUR/USD and .039% for USD/MXN. That is more like 5.6x than 100x, my friend.

For a one year holding period costs are 57x cheaper using the broker OANDA for EUR/USD than the ETF FXE. That is not counting the bid/ask spread on the ETF or commissions, which could jack this up considerably. You have no further costs after that (outside of interest on a negative carry) no matter if you hold for years. So there is virtually no comparison cost wise.

See spreads and carry interest for Oanda here:
www.xrof.com/index.htm...

These ETFs are a scam. This is the cheapest market to trade in the world! Hell, SPY has what like .17% expense ratio?

Also you didn't mention the tax advantages. If you document yourself as a professional trader, you get 60/40 (LT/ST capital gains) like for futures trading.

Here is another article similar to yours:

www.thefinancialwhiz.c.../

I like Ray, he seems cool and quite thoughtful, but ETFs are blunt, expensive ways to trade currencies not matter how long your holding period.

Best wishes,

john

ETF Update: Pharma ETFs, Commodity ETFs, Carry Trade

Mon, 25 Aug 2008 11:20:36 -0400

Greetings,

You have repeated Hougan's error. DBV is leveraged 2:1. The prospectus probably should be read by "professionals."

Cheers from Osaka,
John

DBV: Unlevered Carry Trade ETF for the Masses

Tue, 19 Aug 2008 19:18:51 -0400

My friend, you might read the prospectus. It is levered 2:1, but I agree its a nice fund.

Cheers,
john

Currencies: Dead Cats and Yapping Dogs

Tue, 19 Aug 2008 10:05:31 -0400

Greeting Ray,

Thanks for the ongoing articles about FX carry. It is amazing to see how little info there is out there for such an awesome strategy. You are about the only mainstream writer that details it.

Also, thanks for alerting us to JEM, not sure how i missed that.

I think that you will find JEM and DBV have strong correlation in a rising to high volatility market, so i am afraid that i don't share your diversity views with respect to regions and countries. Just compare USD/TRY and NZD/JPY over the last couple years to see what i mean. Many people look at fx carry as a trade with a risk premium because the reversals are so violent. I see FX carry collectively as being either ON or OFF.

I also do not believe the principle moneymaking of FX carry lies in collecting interest, but then i only employ pairs with a spread >3%.

Nonetheless, i share your enthusiasm. And look forward to more thoughts.

Cheers from Osaka,
john

Foreign Currency Trading: Can Investors Profit From Trends?

Sun, 10 Aug 2008 03:12:53 -0400

Mr. Swedroe,

Thanks for your response. If markets have a risk premium then they have an inherent uptrend. And that is what buy-and-holders are exploiting. Interestingly, risk premium is generally the explanation for why carry trading is persistent.

Cheers from osaka,
john

Bond Ladders vs. Layering with Bond Funds

Sun, 10 Aug 2008 03:07:15 -0400

Greetings Mr. Shaw,

You are as gentlemanly, as you are informative. Boy, ETFs come out so fast it is hard to stay abreast. I hope it sees some volume too.

Do you have any recommendations about good bond brokers outside of Treasury Direct, say for Zero coupon bonds and corporates? There is an article on here by Larry Swedroe about the hidden mark-up on bonds in the secondary market that was a real eye-opener:
seekingalpha.com/artic...

Thanks. Cheers from Osaka,
john

Bond Ladders vs. Layering with Bond Funds

Fri, 08 Aug 2008 22:29:41 -0400

Nice article, as always. I think there is a Ryan index laddered 1-30 treasury ETF, ticker PLW. This may simplify things considerably.

cheers,
john

A Simple Momentum System for Beating the Market

Fri, 08 Aug 2008 00:29:48 -0400

Puddi said: "Most such systems will make some money some of the time. If any system exists that makes good money all of the time, its inventor isn’t going to be writing a book about it."

No trading system purports to make money all of the time. In fact, you can have less than 50% winning trades and can still make money. I suggest you read up on some basic trading theory.

Rudi said: "You didn't reveal any scientific proof because you can't."

Ah, dude first chill and then look at his peer-reviewed published academic paper! This is one of the most documented, pervasive effects in finance and you guys act like Mr. Faber is some kinda snake-oil salesman!!

Mebane, maybe these comments are an indicator as to why the momentum effect keeps on working....

Cheers from Osaka,
john

Yen Cross Basics

Mon, 28 Jul 2008 06:33:22 -0400

An easier rule might be: any carry trade with more than a 3% interest rate differential is going to have fat tails; if you can't handle this, stay out. There is an escalator up and an elevator down. Entering after, say a six month volatility spike, will increase your safety getting into the carry.

Cheers from Osaka,
john

Why Congress Blames Index Speculators

Wed, 23 Jul 2008 21:04:33 -0400

Great analysis, Mr Zigler. That is one of the simplest and most compelling on the subject (out a huge pool of articles).

Cheers,
john

Overselling the Case for Indexing

Tue, 15 Jul 2008 08:51:46 -0400

Even as an indexer, i welcome your skepticism. Isnt it hard to have a market if people aren't over and underperforming the benchmark? Why has indexing become so cult? The Vanguard Diehards forum reads like an AA meeting.

cheers,
john

Does the VIX Need To Spike In a Climactic Low?

Mon, 07 Jul 2008 09:03:36 -0400

Greetings,
I am intrigued by your analysis. I might add that options trading itself has probably changed in the last 22 years, which would have some bearing. Also, volatility on carry trades, 20 year bonds, emerging markets, efa and so forth might suggest that fear isn't quite "close enough". Granted many weak hands have been shaken out, but this is a hard trade being either long or short volatility (as you said).

Cheers from osaka,
john

Strategies for Currency Investors

Mon, 16 Jun 2008 04:15:23 -0400

nice post. I would recommend carry trading as the default strategy and maybe go from there if you are ambitious. Also OANDA is the best retail broker in my opinion. The have no minimum size trading lot, which has huge ramifications for P/L. You can make a one dollar trade if you wish. Oanda is a favorite for carry traders.

For instance, you could mirror the DBV strategy with no fund-fees just the spread. (also DBV is 2X fund).
cheers from osaka,
john

Investing in Non-U.S. Stock Markets

Mon, 28 Apr 2008 09:45:09 -0400

Greetings. I always enjoy your posts.

The world map appears to have an incorrect key. It seems the emerging and developed non-U.S. markets are switched.

Cheers from Osaka,
john

Yen Outlook: Stronger on Japanese Economy or Weaker on Carry Trade Comeback?

Mon, 28 Apr 2008 05:41:24 -0400

Greeting,

The USD is a "borrow" currency in the G10 carry basket a la the ETF DBV, due to its currently low interest rate. That is worth noting for when considering currency trends.

Cheers from Osaka,
john